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Financially closed economies insure themselves against current-account shocks using international reserves. We characterize the optimal management of reserves using an open-economy model of precautionary savings and emphasize several results. First, the welfare-based opportunity cost of reserves...
Persistent link: https://www.econbiz.de/10012456536
This paper proposes a theory of foreign reserves as macroprudential policy. We study an open economy model of financial … significantly reduces the exposure to financial crises. The theory is consistent with the joint dynamics of private and official …
Persistent link: https://www.econbiz.de/10012480180
Foreign currency borrowing is perceived as a source of financial instability in emerging markets. We propose a theory …
Persistent link: https://www.econbiz.de/10012453729
This paper studies the fluctuations of foreign exchange reserves under a regime of credibly fixed exchange rates. The paper considers a variety of assumptions on the determinants of money demand and currency substitution
Persistent link: https://www.econbiz.de/10012475379
In this paper the relationship between the demand for international reserves and exchange rate adjustments is empirically investigated for agroup of LDC's. It is shown that countries that have maintained a fixed exchange rate for a long period of time have a different demand function than...
Persistent link: https://www.econbiz.de/10012478040
rate adjustments. The formulation is theory-based, relying on balance of payments equilibrium conditions and international …
Persistent link: https://www.econbiz.de/10012453428
We study the role of fiscal policy in a complete markets model where the only friction is the nonpledgeability of human capital. We show that the competitive equilibrium is constrained inefficient, leading to too little risky investment. We also show that fiscal policy following a large negative...
Persistent link: https://www.econbiz.de/10012459478
This paper reviews and interprets some of the key policy implications that flow from a class of DSGE models for optimal monetary policy in the open economy. The framework suggests that good macroeconomic outcomes in open economies are possible by focusing inflation targeting that is implemented...
Persistent link: https://www.econbiz.de/10012458120
This paper develops an open economy model in which financial intermediation is subject to occasionally binding collateral constraints, and uses the model to study unconventional policies such as credit facilities and foreign exchange intervention. The model highlights the interaction between the...
Persistent link: https://www.econbiz.de/10012460229
We lay down a standard macroeconomic model of a small open economy with a fixed exchange rate and study optimal capital controls (defined as maximizing the utility of a representative household). We provide sharp analytical and numerical characterizations for a variety of shocks. We find that...
Persistent link: https://www.econbiz.de/10012460461